Despite disaster, U.S. has little choice but to drill offshore

If the oil spill off the Louisiana coast leads to a federal ban on ultra-deepwater drilling and production it could cripple an increasingly important source of America's domestic oil supply. Conventional U.S. oil production has been in decline since the 1970s, and near-shore production along the Gulf Coast peaked in 1997.

WASHINGTON — If the oil spill off the Louisiana coast leads to a federal ban on ultra-deepwater drilling and production it could cripple an increasingly important source of America's domestic oil supply.

So far, the Obama administration hasn't imposed any ban, temporary or longer term, on existing ultra-deepwater operations, but it's delayed new exploration in deep water of the Mid-Atlantic coastline and the eastern Gulf Coast off Florida.

Industry speculation is that cementing around the exploratory well gave way, but that's just the most frequently mentioned of several potential causes. What caused the disaster will determine how much new regulation and costs are imposed on a little-known but increasingly vital segment of U.S. oil production.

"The stakes are going to be ... big, big, big. This is going to have all kinds of consequences for the oil and gas industry in a lot of different ways, both anticipated and unanticipated," said David Dismukes, associate executive director of the Center for Energy Studies at Louisiana State University in Baton Rouge. "Clearly, you are going to have changes in regulation. ... What implications it will have for cost is not very clear right now."

Costs are an important part of the equation, since ultra-deepwater drilling, defined as water depths of 5,000 feet or greater, isn't cheap.

"To drill a well in the ultra-deepwater it's not uncommon to spend $1 million a day, and you might be on location for 150 days," said Art Schroeder, a technology expert for the Research Partnership to Secure Energy for America, a public-private nonprofit group that promotes unconventional oil extraction and was created by the Energy Policy Act of 2005. "If you have to spend $150 million, you want to make sure you are placing the well in the right location."

While near-shore oil rigs often are built down to the ocean floor, ultra-deepwater exploration and production rigs are tethered to a series of anchors thousands of feet below the surface.

These rigs move like marsh reeds in the wind and tides. Think of them as atop the beanstalk in the fairy tale, although the beanstalk leads to the ocean floor, not up into the clouds. Ultra-deepwater production involves miles of vertical pipe. The BP exploration well that's leaking was 18,000 feet below the seafloor, which itself is 5,000 feet below the ocean surface. That's 23,000 feet of tubing, or more than four miles of pipe.

Ultra-deepwater production matters because conventional U.S. oil production has been in decline since the 1970s, and near-shore production along the Gulf Coast peaked in 1997. U.S. consumers and businesses get nearly half their oil from domestic production, most of it from the gulf region.

"It's a big part of our supply from the entire gulf ... and we're expecting the increase to continue," said Leta Smith, the director of oil supply research for Cambridge Energy Research Associates, a leading oil analyst.

Globally, one in every 10 barrels of oil produced in 2030 will come from ultra-deepwater operations, she said, adding that roughly 70 percent of the deep water in the Gulf of Mexico remains unexplored.

In 1990, the deep waters of the Gulf of Mexico yielded about 20,000 barrels per day of crude oil. By 2009, that number had grown to 1 million, according to CERA.

Nine projects that are coming onstream will add at least 200,000 barrels per day this year, said CERA researchers, who expect deepwater production to account for 17 percent of U.S. liquids production this year, which includes oil and natural gas.

Today there are at least 42 active deepwater projects for exploration or production in the U.S. Gulf of Mexico or international gulf waters, and at least another five projects in the works. Seventeen of those are ultra-deepwater.

Deepwater drilling used to be considered depths around 1,000 feet below the sea surface, but it's now a range of about 1,500 feet to 5,000 feet. Anything 5,000 feet or more below the surface is described as ultra-deepwater.

Transocean Ltd., whose exploration rig exploded and collapsed last month, leading to the spill, boasted last September that it's drilled to 35,000 feet below the ocean floor, operating below 4,130 feet of water. That project was for BP, as is the one involving the spill. Switzerland-based Transocean also bragged that it held the record for operating in deep water, at 10,011 below the surface, on a Chevron project.

Outside the Gulf Coast region, Brazil is the world's most promising ultra-deepwater producer, with new discoveries in the past five years in the so-called Santos basin that experts think will make the South American giant a powerhouse in the oil business. Deep waters off the African nations of Nigeria and Angola also hold promise.

Deepwater drilling began in earnest in the 1960s, pioneered in the North Sea. The Arab oil embargo of the 1970s gave a push to shallow water exploration and production along U.S. Gulf Coast states.

Oil companies seek leasing rights from the Department of Interior's Minerals Management Service to explore for oil on deep-sea tracts. They deploy sophisticated electronics to take seismic "snapshots," sending and measuring sound waves that penetrate the seafloor and rock formations to reach vast but deeply buried reservoirs of oil.

The evolution of sophisticated software enables oil companies to convert the returning sound waves into three-dimensional computerized images of what lies below.

Once oil has been found and confirmed with an exploratory well, production can take up to three years to begin.

Exploration and production rigs can be as long as seven football fields, and the drilling process is akin to connecting huge drinking straws until a reservoir of oil is perforated. The fluid that flows through the pipes helps weigh them down, and valves help control the flow and usually allow for shutoff.

The failure of these valves is one line of investigation into the spill.